Mortgage Protection Insurance Explained

Mortgage Protection Insurance is a term used to encompass various types of cover designed to protect borrowers from events which could severely impact their ability to maintain mortgage payments.

There are
different variations but when connected to a mortgage they are all there to
provide peace of mind and usually fall into the following categories:

Life Cover

Critical Illness Insurance

Income Protection

Family Income Benefit

Life Cover

As a
rule, if the policyholder dies within the term, then the sum assured should be
enough to pay off the outstanding mortgage balance and ensure the borrower’s
dependants aren’t left with a debt they might not otherwise be able to
manage.

Our advisors can run through all the different types of life cover and recommend the most suitable plan for you.

Critical Illness Insurance

Critical
Illness Insurance works in a similar way to Life Assurance, in that it is
usually taken for a specific term of years and can have the different options
such as level/increasing etc. It is designed to pay out a lump sum and, like
Life cover, for borrowers it is typically taken on a decreasing term basis in
line with the reduction of your mortgage balance.

The key
is that the benefit is paid if you fall victim to one of a number of specified
critical illnesses and pays out whatever the long-term prognosis of that
illness. The type of illnesses covered vary from company to company, that’s why
this type of insurance cannot be solely price driven and advice is recommended.

In
practice many companies will offer Life and Critical Illness Critical cover as
a combined policy and would usually pay out on the “first event” i.e. whatever
happens first – either death or serious illness – the pay-out is made. They can
also be written on a single or joint life basis

Income Protection

Whereas
Life and Critical Illness cover pay out a lump sum, Income Protection pays out
a monthly sum designed to replace your wages in the event of you being unfit to
work. Unlike Critical Illness cover, there are no restrictions on the illnesses
or injuries covered, the only factor being whether they make you unfit to work.
There are however restrictions on how much you can cover and how quickly
benefits would start to be paid.

Like Life
and Critical Illness cover, these policies are underwritten based on your
health and lifestyle at the time you apply. All income protection policies are
written on a single life basis.

Family Income Benefit

Probably
the least common of the mortgage protection type policies but can often be
valuable – particularly for those with young families. These plans can be taken
to cover Life and/or Critical Illness and are underwritten on application in
the same way as mentioned above.

However,
unlike the traditional forms of policy, rather than pay out a lump sum, the
cover would pay an annual or monthly income for the remainder of the term of
the plan. Thus, it can replace the income of the main breadwinner for a number
of years, dependent upon a particular client’s circumstances and, because of
this would usually be written on a level or basis, or an index-linked basis
designed to keep up with inflation.

Summary

There’s an
adage that says you can never have too much insurance. Certainly, many people
have one or more of the different types of policy and it would be wrong to
think of Mortgage Protection Insurance as just an “either/or” choice. However,
in the real world, affordability plays a massive part, so whilst it would be
fantastic to cover yourself for every potential opportunity, a good advisor
will sit down with you and tailor the type of cover to be the most suitable
combination to your family’s priority and budget.

This is
where we can help!

Please give us a call or fill out our enquiry form to speak with one of our Dedicated Protection Specialists.

I could not fault the service we received from Jason and his colleagues at Sheffield Money Man at all! They were quick to respond to any questions, were willing to work with our particular requirements, and were 100% ethical and transparent in all of their communication. I'll definitely be recommending them to friends and colleagues !

Alice B

Brilliant service received from Sheffield Money Man! Unfortunately we had a purchase fall through but they were there every step of the way. If we had any questions they were answered very quickly and accurately. I really can't recommend Sheffield Money Man enough and will definitely be using them again in the future. A special thankyou to Jason, Mel and Laura

Matthew B

Very knowledgeable team that were able to quickly process our mortgage offer and life insurance. I would recommend them to others especially if you require a quick turnaround.